Proposal to increase tenant liability

01 November 2016

The Government is considering changes to the Residential Tenancy Act (RTA) over when property damage costs can be reclaimed from tenants.

Building and Housing Minister Nick Smith has acknowledged that recent court rulings are causing "angst" for landlords and says MBIE (the Ministry of Business, Innovation and Employment) will be doing targeted consultation with tenant and landlord organisations, and the insurance sector, on possible amendments to the RTA.

The most high profile of the recent decisions was the Court of Appeal Oseki ruling, discussed in our September blog.

Dr Smith says he is particularly interested in views on what is an appropriate limit on tenants’ liabilities and he believes the ‘new interpretation’ of the RTA in the Oseki case would drive up insurance costs and rents.

"The proposal I am considering is that tenants would be liable for damage caused by carelessness or negligence up to the value of their landlord’s insurance excess but not exceeding four weeks’ rent, which is aligned with the standard tenancy bond. A different amount could be mutually agreed if specifically provided for in the tenancy agreement and would enable the tenant, if they wished, to take out their own insurance," said Dr Smith.

"The tenant would remain fully liable for damage caused intentionally or caused by a criminal act, with no limitation. The landlord would remain liable for fair wear and tear, and any damage caused to the property by an event beyond the tenant’s control, such as a storm or an earthquake."

Quinovic Bay of Plenty principal Juli Tolley welcomes the prospect of a change to the RTA to reduce the hassles and cost facing landlords when significant tenant damage occurs.

"It’s definitely a positive move," says Juli. "But capping the tenant’s liability at four weeks rent equivalent is not going to cover the thousands of dollars needed to replace carpets, for instance, which is about $4000 for a 3-bedroom house."

Juli says insurance claims for tenant damage cause landlords’ insurance premiums to increase and investors with multiple properties face rises across all their properties.

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